Video Play Music
02, March
Both Sides Now – February 2021 Commentary
Market Commentary

Both Sides Now – February 2021 Commentary

“I’ve looked at clouds from both sides now. From up and down and still somehow it’s cloud’s illusions I recall.” 

- Joni Mitchell, lyrics from “Both Sides Now”

Financial - Feritage Wealth - HWMG Norfolk

Inflection points contain a quality uniquely their own. They provide the observer the ability to gaze upon both past and future simultaneously though with the act posing a risk of confusing one for the other! Certainly, the disconnect this month between the commentary of some market observers and its contrast to what investors observe in the returns in their portfolios reveals at least the possibility of the existence of alternative realities.

The Bloomberg story of February 25th “In a Flash, U.S. Yields Hit 1.6%, Wreaking Havoc in Markets” contained verbiage leaving the reader uncertain as to whether they were reading about a circus or a war. Supporting the former were words such as “catapulted”, “tumbled” and “soaring”. “Jarring spectacle”, “led the plunge”, “amid the carnage”, and “bond yields were exploding” though suggested the existence of something a bit more ominous. 

The grist for this particular mill of hyperbole is the interest rate on the Ten-Year US Treasury Bond which closed the month at 1.54%, a not insignificant increase from its level of 1.11% one month previously. Here it might be helpful to place that particular security upon a gurney and perform a bit of dissection. The stated interest rate, in this instance the aforementioned 1.54%, contains within that single number the presence of two. The “nominal” rate is the number referenced but there is a second number as well, the “real” or inflation adjusted rate. If expectations of future inflation rates have increased by more than .43% in the past month then the inflation adjusted rate is declining. If this is a sign that financial markets are starting to anticipate the reopening of the economy and a surge in economic activity, then this might be very good news. 

It is quite possible that an increasing disconnect exists between the increasing amount of sunlight likely to be present in our futures and the darkness of our experience of the now almost one-year journey through the pandemic. The opportunity for investors equals the distance between expectations and reality and this is a salve that should stimulate the pulses of the bullishly inclined. With the Federal Reserve promising not to raise interest rates this year and with the US Congress due to pass the Biden administration’s request for an additional $1.9 trillion in federal spending with $1.2 trillion to be spent this year, 6% of the US economy, the winds in the sails of economic growth are strong indeed.   

Money - Finances - Heritage Wealth Finances

The judge whose verdict investors most care about of course are the returns of the financial markets themselves. Here the shift in market leadership which has been much in evidence since early November supports the sunny view of our current economic prospects. The index, named after Henry Varnum Poor, belied his surname by rising 2.8% for the month with the spread between value and growth continuing to wide as the value portion rose 6% for the month and is +4.3% for the year contrasting with growth’s -.04% and -.05% respectively. Energy stocks continue to race forwards with monthly returns of 21.4% and 26.2% year to date followed by Financials 9.4% and 6.9%. The equity share of the 60/40 portfolio contributed 3.8% to the portfolio’s 3% for the month and 3.4% year to date.

Mark H. Tekamp; February 27, 2021

Related Insights

01, November
Goldilocks & The Two Stairs
Market Commentary

Goldilocks & The Two Stairs

Yes, there are two paths you can go by, but in the long run…as we wind on down the road...

Read More
31, July
Bull Market Blues
Market Commentary

Bull Market Blues

“Well, first you got to want to get off, bad enough to want to get on in the first place...

Read More
10, November
Bigger Than You Think
Market Commentary

Bigger Than You Think

Many of our fellow citizens and this may include yourself, are rubbing their temples to encourage blood flow to minds...

Read More
03, January
Prometheus Unbound
Market Commentary

Prometheus Unbound

“Time in its aging course teaches all things.”- Aeschylus, Prometheus Unbound   There is a narrative that, while not held...

Read More
03, January
Heads & Tales – December 2020 Commentary
Market Commentary

Heads & Tales – December 2020 Commentary

“Facts are stubborn things; and whatever may be our wishes, our inclinations, or the dictates of our passion, they cannot...

Read More
06, June
Is Jay Your Pal (Powell)?
Market Commentary

Is Jay Your Pal (Powell)?

“Choice without alternative is only a sleight of hand, it is a magician’s force-play during which you believe you have...

Read More